Farm Horizons, Aug. 2006
Decision-making a constant part of farming
By Ivan Raconteur
Ask 10 farmers when and why they make their buying decisions, and you are likely to get at least 10 different answers.
On that much at least, local producers seem to agree.
The variety of opinions is not all that surprising, since every farm and situation is different.
Perhaps more than any other type of business, the decisions farmers make affect not only their profitability, but their very survival.
Low crop prices and tight margins make even the smallest decision critical to the success of an operation.
Planning ahead is something all farmers must do.
“The best discounts are off by the end of December, so we try to make the determinations about what we are going to do when we are harvesting,” Kraig Krienke of Lester Prairie said.
Fertilizer is another input that needs to be purchased in advance.
“We apply fertilizer in the spring, but we make the decision about what to buy in January or February,” Krienke commented.
He said that he looks for the best values he can find, and practices “bargain shopping” whenever possible.
Greg Otto who farms west of Lester Prairie also believes in planning ahead. He said that 80 percent of his inputs are purchased before the first of the year.
“We try to make the most of everything we have. We look at the cash flow from each field and evaluate each crop from last year,” Otto said.
He explained that he uses this information to help him determine what to do the following year.
In addition to deciding which crops to plant, farmers must look at the cost of all of their inputs. A small variation in cost on one item can add up to a big difference on the bottom line.
“We make a large amount of big square bales,” Krienke said. The weather affects the moisture content of the bales.
“We need a moisture content of about 15 to 16 percent. When the bales are wet, we need to apply a preservative, which can cost as much as $8 per bale,” Krienke said.
He pointed out that when this cost is multiplied by about 600 bales each year, it can add up to a significant expense.
Last June, Krienke purchased a hay tedder for $8,000. The implement is used to spread out hay after it is cut, to speed up the drying process. This can reduce the drying time by one full day, which can be crucial to the quality of the hay.
Faster drying can reduce the amount of propionic acid needed to preserve the hay.
Speeding up the drying time, can also preserve the initial quality of the feed.
“Rain is detrimental to the quality of the hay. If it rains while cut hay is laying in the field, the value of the hay can be cut in half, Krienke said.
Despite the best efforts of producers to reduce costs and improve efficiency, there are some factors that are beyond their control.
“Last year was fairly profitable, and our milk checks roughly matched our costs. Now, 12 months later, our milk checks are $10,000 less a month, and we are paying the same bills,” Krienke said.
Some costs have gone up dramatically. Krienke said the cost of diesel fuel has at least doubled in the last three years. He uses between 1,000 and 1,500 gallons of diesel fuel per month, so his costs have skyrocketed without any corresponding increase in income.
This, according to Krienke, is one of the factors that is forcing a change in the industry.
“That is why you are not seeing many 50-cow dairies any more. The next generation is not continuing to farm. For some of those who do, the wife has to work out to support your ‘bad habit of farming,’” Krienke said.
In addition to deciding what crops to plant, and what seed and other inputs to buy, farmers need to make tough decisions about capital purchases for the tools of their trade.
Krienke said that he generally makes capital purchases of items such as machinery on an “as-needed” basis.
The net cost of these decisions are an important consideration.
“We look at the cost of maintaining what we have or renting equipment, versus the cost of buying equipment,” he commented.
The timing of purchases can also affect price.
“We try to buy equipment during the winter months if we have a choice, because it is cheaper then,” Otto said.
He acknowledged, however, that this is not always an option.
“We do a lot of custom baling, and last year, we had a major breakdown of a baler in the middle of the season, and we had to replace it,” Otto said.
The final decision farmers must make is when to sell their crops.
Krienke said operators have three options when it comes time to sell.
“If the market price does not meet the sale price you need based on your cost of production, you can sit on it, and hope the price will go up; you can sell at a loss, or you can forward-sell, and hope to capture a profit,” he said.
Herald Journal / Enterprise Dispatch